Cayman may have luxury of time if AIFMD passporting further delayed


The Cayman Islands are a good distance along the path to a positive assessment from the European Securities Markets Authority (ESMA) on whether to extend the alternative investment fund managers' directive (AIFMD) passport to its investment fund managers and investment funds – and may also have the luxury of time, according to law firm Mourant Ozannes.

ESMA revealed in July that it was to delay its recommendation to the European Commission on whether to grant a third country passport to Cayman Islands Alternative Investment Fund managers under the Alternative Investment Fund Managers Directive (AIFMD), partly due to the fact that Cayman is in the process of implementing a new regulatory regime.

In a legal note, Mourant Ozannes pointed out that while jurisdictions which have received an unqualified thumbs-up from ESMA are understandably keen that the EU moves towards implementing the passport regime sooner than later, jurisdictions with work to do may benefit from any delays.

It said the Cayman Islands are a good distance along the path to a positive assessment, though ESMA has sought identified refinements to Cayman's regulatory framework before such an advice is given; the legislative process for the implementation of these additional requirements is in process and they are expected to be delivered fully in the next few months.

ESMA advised the EU Institutions that, whilst nothing negative was noted by ESMA in its assessment of the Cayman Islands, it was not able to provide definitive advice regarding the criteria of investor protection, effectiveness of enforcement and the monitoring of systemic risk in the Cayman Islands.

“It is clear that the Cayman Islands are moving steadily in the direction which ESMA would like to see and will soon meet the assessment criteria for a passport, should the AIFMD passport regime be extended to third countries,” Mourant Ozannes said.

“Cayman may, however, have the luxury of time if the EU Institutions decide to wait until there is critical mass in terms of the number of non-EU countries which have received an unqualified favourable decision from ESMA4 before extending the passporting regime to non-EU countries.

“ESMA also noted that its assessment focussed on regulatory issues and that the EU Institutions may wish to consider additional factors before exercising their discretion to extend passporting, including fiscal matters in the non-EU country and the latest intelligence on the anti-money laundering and counter-terrorism financing regime in that country.

“Accordingly, with the legislative process underway for the refinement of the regulatory framework in Cayman in line with ESMA's requirements, we expect ESMA to re-visit its assessment of the Cayman Islands shortly, with a positive advice resulting for Cayman Islands.”

Mourant Ozannes, Cayman Islands, Law, Investment funds, Alternative Investment Fund Managers Directive, passport, European Union

Cayman Funds